The chairman of UBS Group AG, Colm Kelleher, has voiced serious concerns over growing vulnerabilities in the United States insurance industry, pointing to weak and overly complex regulatory frameworks amid a sharp rise in private debt investments.
Speaking at the Hong Kong Monetary Authority’s Global Financial Leaders’ Investment Summit on Tuesday, Kelleher cautioned that the market is witnessing a troubling increase in “rating agency arbitrage,” a phenomenon reminiscent of the practices that triggered the 2007 subprime mortgage crisis. “In 2007, subprime was all about rating agency arbitrage. What you see now is a massive growth in smaller rating agencies ticking the box for compliance of investment,” he remarked.
His warning comes as US life insurers have significantly expanded their exposure to private debt in recent years. According to research firm CreditSights, nearly one-third of the industry’s $5.6 trillion in assets was invested in private debt last year, up from 22 per cent a decade earlier. This surge has raised red flags among global financial regulators, who fear potential knock-on effects for the broader banking system.
The concerns follow a series of recent corporate collapses, including the September failures of subprime car lender Tricolor Holdings and auto parts manufacturer First Brands Group. Those incidents prompted JPMorgan Chase & Co. chief executive Jamie Dimon to warn that there could be more “cockroaches” lurking in the financial system.
Kelleher specifically highlighted the lack of robust oversight within the insurance sector. “If we look at the insurance business, to me, there is a looming systemic risk coming through, and it’s because of lack of effective regulation,” he said. He noted that the growing use of smaller credit rating agencies—often favoured for their flexibility—poses a risk of “inflated assessments of creditworthiness.”
His warning aligns with a recent report from the Bank for International Settlements (BIS), which cautioned that smaller rating agencies may have commercial incentives to assign more favourable ratings to win business, thereby weakening the credibility of credit assessments. The BIS report also noted that insurers tend to prefer higher ratings because these allow them to hold less capital against their investments, but reliance on smaller agencies could distort the true level of risk and amplify systemic vulnerabilities across the sector.
In a broader reflection on the global financial landscape, Kelleher also discussed Switzerland’s shifting role as a leading wealth management hub. He suggested that the country is undergoing an “identity crisis” within international banking, facing unprecedented competition from fast-growing financial centres such as Hong Kong and Singapore. “Switzerland is having a bit of an identity crisis about what its role is in world banking,” he said, adding that Asia’s key hubs are “rapidly catching up.”
According to Bloomberg Intelligence, Hong Kong’s private wealth under management could nearly double to $2.6 trillion by 2031, and the city is on track to surpass Switzerland this year as the world’s largest cross-border wealth management centre.
UBS, headquartered in Zurich, is currently focused on absorbing its acquisition of Credit Suisse, a government-backed rescue completed in early 2023. At the same time, the bank is lobbying the Swiss authorities to reconsider proposed regulatory changes that could require up to $26 billion in additional capital—a move that Kelleher has warned could constrain UBS’s global competitiveness.